HARROW, INC. (HROW) FY 2024 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and
analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements
and the related notes contained in this Annual Report on Form 10-K (this “Annual Report”). Our consolidated financial statements
have been prepared and, unless otherwise stated, the information derived therefrom as presented in this discussion and analysis is presented,
in accordance with accounting principles generally accepted in the U.S. (GAAP). In addition to historical information, the following
discussion contains forward-looking statements based upon our current views, expectations and assumptions that are subject to risks and
uncertainties. Actual results may differ substantially from those expressed or implied by any forward-looking statements due to a number
of factors, including, among others, the risks described in the “Risk Factors” section and elsewhere in this Annual Report.

As used in this discussion
and analysis, unless the context indicates otherwise, the terms the “Company,” “Harrow” “we,” “us”
and “our” refer to Harrow, Inc. and its consolidated subsidiaries, including Imprimis RxNJ, LLC, Imprimis NJOF, LLC, ImprimisRx,
LLC, Harrow IP, LLC and Harrow Eye, LLC.

Overview

We are a leading eyecare pharmaceutical
company engaged in the discovery, development, and commercialization of innovative ophthalmic pharmaceutical products for the U.S. market.
We help U.S. eyecare professionals preserve the gift of sight by making its comprehensive portfolio of prescription and non-prescription
pharmaceutical products accessible and affordable to millions of Americans each year. We own commercial rights to one of the largest
portfolios of branded ophthalmic pharmaceutical products in North America, all of which are marketed under the Harrow name. We also own
and operate ImprimisRx, one of the nation’s leading ophthalmology-focused pharmaceutical-compounding businesses.

Factors Affecting Our Performance

We
believe the primary factors affecting our performance are our ability to increase revenues of our branded pharmaceutical products,
proprietary compounded formulations and certain non-proprietary products, grow and gain operating efficiencies in our operations,
avoid or mitigate any potential regulatory-related restrictions, optimize pricing and obtain reimbursement options for our drug
products, and continue to pursue development and commercialization opportunities for certain of our ophthalmology and other assets
that we have not yet made commercially available. We believe we have built a tangible and intangible infrastructure that will allow
us to scale revenues efficiently in the near and long-term. All of these activities will require significant costs and other
resources, which we may not have or be able to obtain from operations or other sources. See “Liquidity and Capital
Resources” below.

Recent Developments

The following describes certain
developments in 2024 and 2025 to date that are important to understand our financial condition, results of operations, and expectations. See the notes
to our consolidated financial statements included in this Annual Report for additional information about certain developments.

VEVYE
Access for All

In
March 2025, we announced a patient access program called VEVYE Access for All.  The program is designed to increase patient access
to VEVYE at an out-of-pocket cost of $59 or below and, in many cases, reduce the need for prior authorizations, step edits, and other
treatment obstacles facing dry eye patients and their prescribers.

Project
Beagle

We
recently initiated a 360-degree review of opportunities to offer ImprimisRx customers a Harrow-owned FDA-approved product
alternative to a compounded formulation. We call this initiative Project Beagle. In that vein, we began implementing a continuity of
care program to transition approximately 25,000 ImprimisRx patients from our Klarity-C (0.1% cyclosporine) compounded formulation to
VEVYE (0.1% cyclosporine), and we expect to discontinue compounding Klarity-C by June 30, 2025.  We are also discontinuing
another related compounded formulation called Klarity PF. Klarity PF is primarily purchased by a concentrated group of customers
who we expect to accept our FRESHKOTE product as an alternative. As we work through Project Beagle, we will continue to
review opportunities to reduce the size of our compounded formulary, improve and simplify our compounding capabilities, and
transition other ImprimisRx customers from compounded formulations to Harrow’s FDA-approved products.

Cybersecurity Incident

In November
2024, we became aware of a cybersecurity incident that involved unauthorized access of an employee’s email account. Through this
unauthorized access the threat actor was able to fraudulently divert Company funds to its bank account. We detected the incident in a
timeframe management believes minimized any financial, operational or reputational risk to the Company, and at no point was our ability
to generate revenues disrupted.

TRIESENCE Re-Launch,
Oaktree Second Amendment and Draw

In
October 2024, we announced the re-launch of TRIESENCE following the successful manufacturing of three process performance
qualification batches of the product. In March 2025, we announced TRIESENCE was granted temporary pass-through reimbursement status
to be made effective April 1, 2025. In connection with the re-launch, during October 2024 we made a one-time payment of $37,000,000
to Novartis Technology, LLC and Novartis Innovative Therapies AG (together, “Novartis”) pursuant to terms of an asset
purchase agreement between Novartis and the Company. Also, during October 2024, we entered into the Second Amendment (the
“Second Amendment”) to the Credit Agreement and Guaranty originally entered into on March 27, 2023, as amended by that
certain First Amendment to Credit Agreement and Guaranty and Consent, dated as of July 18, 2023 (as amended, the “Oaktree
Loan”), with the lenders from time to time party thereto and Oaktree Fund Administration, LLC, as administrative agent for the
lenders (together “Oaktree”). Upon satisfaction of certain conditions to funding, the Company drew down the principal
amount of $30,000,000 (the “$30,000,000 Draw”) under a pre-existing commitment under the Oaktree Loan to partially fund
the one-time payment to Novartis.

In the
Second Amendment, the Company and Oaktree agreed to certain changes to the Oaktree Loan in connection with the Company’s draw under
the Oaktree Loan. Pursuant to the amendment, Oaktree agreed to waive any make-whole costs associated with the $30,000,000 Draw in the
event of early repayment of the debt under the Oaktree Loan if paid before March 31, 2025. In addition, Oaktree agreed to exclude the
$30,000,000 Draw from the calculation of the Total Leverage Ratio as defined in the Oaktree Loan. No other material changes to the Oaktree
Loan were provided in the Second Amendment.

Following
entry into the Second Amendment and the funding of the Novartis milestone payment, the Company has drawn down a total principal loan
amount of $107,500,000 under the Oaktree Loan and no additional principal loan amount remains available to the Company under the Oaktree
Loan.

Apotex - Canadian Out-License

In February
2024, we entered into a license and supply agreement with Apotex Inc. (“Apotex”). Under the terms of the agreement, Apotex
licensed exclusive rights and marketing authorizations of the following products in the Canadian market from Harrow: VERKAZIA (cyclosporine
ophthalmic emulsion) 0.1% and Cationorm PLUS. Apotex was also granted a license for products Apotex will pursue approval for in Canada:
VEVYE (cyclosporine ophthalmic solution) 0.1%, IHEEZO (chloroprocaine hydrochloride ophthalmic gel) 3%, and ZERVIATE (cetirizine ophthalmic
solution) 0.24% (with VERKAZIA and Cationorm Plus, collectively, the “Apotex Products”). In exchange for these licenses,
Harrow will earn amounts related to manufacturing, regulatory and commercial achievement milestones, in addition to royalties on net
sales of the Apotex Products.

IHEEZO Reimbursement

In January
2024, we met with the Centers for Medicare & Medicaid Services (“CMS”) to request clarification related to its anesthesia
billing policy which has historically not allowed for the separate billing of anesthesia services in the physician’s office. During
the meeting we requested that CMS clarify that J-Code 2403, IHEEZO’s permanent J-Code, is appropriate to be billed for the anesthesia
product itself (i.e., IHEEZO in our case) in the physician office setting. In March 2024, we received communication from a representative
at CMS that the inclusion of J-Code 2403 in CMS’s April 2024 quarterly drug pricing file of the average sales prices (ASP) of some
Medicare Part B-covered drugs and biologicals confirms that IHEEZO is separately payable in the physician office setting.

In February
2024, we made a request to CMS to consider increasing the Medically Unlikely Edits (“MUE”) for IHEEZO’s J-Code from
1 to 2. This request was made because the limitation of one MUE only allowed a single IHEEZO administration (equal to one single-use
vial) to be used and billed, while many ophthalmologists perform bilateral ocular procedures, which would require two vials of IHEEZO
to be used. On March 20, 2024, we received communication from the National Correct Coding Initiative (NCCI) program of CMS stating that
CMS decided to increase the MUE for IHEEZO’s J-Code (J2403) from 1 to 2. The MUE edit was made effective on July 1, 2024.

VEVYE U.S. Launch

In January
2024, we launched VEVYE (cyclosporine ophthalmic solution) 0.1%, the first and only water-free cyclosporine dissolved in a semifluorinated
alkane approved to treat both the signs and symptoms of dry eye disease in the U.S. We partnered with various entities including PhilRx,
Apollo Care and PARx Solutions to enhance our market and patient access program for VEVYE.

Results of Operations

The following period-to-period
comparisons of our financial results are not necessarily indicative of results for any future period.

Comparison of Years Ended December 31, 2024
and 2023

Revenues

Our revenues include amounts
recorded from sales of branded products to wholesalers through a third-party logistics facility, sales of proprietary compounded formulations,
and revenues received from royalty payments owed to us pursuant to out-license and like arrangements. The following presents our revenues:

The increase in revenues
from product sales between the years ended December 31, 2024 and 2023 was largely attributed to increased sales and marketing
efforts, new product launches (e.g. VEVYE) and the closing of certain product acquisitions that occurred in 2023. The decrease in
other revenues between the years ended December 31, 2024 and 2023 was the result of profit transfers from acquired products during
2023, and upon transfer of those product New Drug Applications (“NDAs”) we stopped recording a profit transfer and began
booking revenues from the sale of those products.

Cost of Sales

Our cost of sales includes direct
and indirect costs to manufacture formulations and sell products, including active pharmaceutical ingredients, personnel costs, packaging,
storage, royalties, shipping and handling costs, manufacturing equipment and tenant improvements depreciation, the write-off of obsolete
inventory, amortization of acquired product NDAs, and other related expenses.

The following presents our cost
of sales for the years ended December 31, 2024 and 2023:

Branded

The increase in cost of sales
associated with our branded products between the years ended December 31, 2024 and 2023 was largely attributable to the increase in products
sold and amortization of acquired product NDAs which totaled $10,093,000 for the year ended December 31, 2024, compared to $9,314,000
during the prior year.

ImprimisRx

The increase in our ImprimisRx
cost of sales between the years ended December 31, 2024 and 2023 was largely attributable to expenses associated with the increase in
unit volumes sold.

Gross Profit and Margin

Branded

The increase in Branded gross
margin between the years ended December 31, 2024 and 2023 was primarily attributable to an increase in overall sales which reduced the
net impact of our fixed expenses in cost of sales, such as NDA license amortization.

ImprimisRx

The increase in ImprimisRx gross margin between the
years ended December 31, 2024 and 2023 was primarily attributable to an increase in sales of products during 2024 with lower gross margin
profiles as compared to 2023.

Selling, General and Administrative Expenses

Our selling, general and
administrative (“SG&A”) expenses include personnel costs, including wages and stock-based compensation, corporate
facility expenses, and investor relations, consulting, insurance, filing, legal and accounting fees and expenses as well as costs
associated with our marketing activities and sales of our proprietary compounded formulations and other non-proprietary pharmacy
products and formulations.

The following presents our
SG&A expenses for the years ended December 31, 2024 and 2023:

The increase in SG&A
expenses between periods was primarily attributable to the addition of new employees in sales, marketing and other departments to
support current and expected growth, including the commercial launch of VEVYE, which when combined contributed to a $32,743,000
increase in SG&A during the year ended December 31, 2024 compared to the prior year. In addition, stock-based compensation
expense increased by $1,863,000 during the year ended December 31, 2024 compared to the prior year. Regulatory enhancements and
costs to support the transition of recent product acquisitions also caused SG&A to be higher for the year ended December 31,
2024 compared to 2023.

Research and Development Expenses

Our
research and development (“R&D”) expenses primarily included personnel costs, including wages and stock-based compensation,
expenses related to the development of intellectual property, investigator-initiated research and evaluations, formulation development,
acquired in-process R&D and other costs related to the clinical development of our assets.

The following presents our R&D
expenses for the years ended December 31, 2024 and 2023:

The increase in R&D expenses
between the years ended December 31, 2024 and 2023 was primarily attributable to activity related to our expanded branded product portfolio,
technical transfer activities associated with the production of certain products related to our product acquisitions that occurred in
2023, product development efforts, product launches, and clinical and medical support. In addition, during the fourth quarter of 2024,
we recorded $2,000,000 of one-time R&D costs associated with the product development of TRIESENCE.

Impairment and Disposal of Long-Lived Assets

During the year ended December
31, 2024, we recognized an impairment loss of $253,000 related to intellectual property that we expect to no longer utilize in future
revenue generating products and compounded formulations. During the year ended December 31, 2023, we recorded a charge of $548,000, of
which, $380,000 was related to the impairment of licenses, trademarks, patents and patent applications and $168,000 was related to equipment
that was no longer in service.

Interest Expense, net

Interest expense, net was $22,786,000
during the year ended December 31, 2024, compared to $21,324,000 during the year ended December 31, 2023. The increase was primarily
due to an increase in the principal balance of our loans throughout the two periods presented.

Investment Gain (Loss) from Eton

During the year ended December
31, 2024, we recorded a loss of $(3,171,000) related to the change in fair market value of Eton’s common stock at the time of its
sale, including trading expenses and commissions of approximately $436,000, compared to a gain of $3,092,000 during the year ended December
31, 2023.

Loss on Early Extinguishment of Debt

During the year ended December
31, 2023, we recorded a loss on extinguishment of debt of $5,465,000, related to the payoff of a loan. There were no extinguishments
of debt during the year ended December 31, 2024.

Other Income (Expense), net

During the year ended December
31, 2024 we recorded other expense, net of $(185,000) related primarily to income from the sublease of office space in Nashville, offset
by a loss associated with the cybersecurity incident. During the year ended December 31, 2023 we recorded other expense, net of
$(444,000) related primarily to transition services and write-off of inventories associated with the divestment of our non-ophthalmology
business, and a charge related to equipment that was no longer in service.

Tax Expense

During the years ended December
31, 2024 and 2023, we recorded income tax expense of $161,000 and $701,000, respectively.

The following table presents
our net loss for the years ended December 31, 2024 and 2023:

Liquidity and Capital Resources

Liquidity

Our cash on hand at December
31, 2024 was $47,247,000, compared to $74,085,000 at December 31, 2023.

As of the date of this Annual
Report, we believe that cash and cash equivalents of $47,247,000 at December 31, 2024 will be sufficient to sustain our planned level
of operations and capital expenditures for at least the next 12 months. Management expects to refinance the Oaktree Loan during 2025.
Management believes it is probable that we will be able to refinance the Oaktree Loan; however, there can be no assurance that we will
obtain the refinancing on terms acceptable to us, or at all - see the subheading Sources of Capital below for additional discussion
regarding the Oaktree Loan and refinancing plans. In addition, we may consider the sale of certain assets including, but not limited
to, part of, or all of, our investments in Surface and Melt and any of our consolidated subsidiaries. However, we may pursue acquisitions
of products, drug candidates or other strategic transactions that involve large expenditures or we may experience growth more rapidly
or on a larger scale than we expect, any of which could result in the depletion of capital resources more rapidly than anticipated and
could require us to seek additional financing to support our operations.

We expect to use our current
cash position and funds generated from our operations and any financing to pursue our business plan, which includes developing and commercializing
products, drug candidates, compounded formulations and technologies, integrating and developing our operations, pursuing potential future
strategic transactions as opportunities arise, including potential acquisitions of additional drug products, drug candidates, and/or
assets or technologies, pharmacies, outsourcing facilities, drug company and manufacturers, and otherwise fund our operations. We may
also use our resources to conduct clinical trials or other studies in support of our formulations or any drug candidate for which we
pursue FDA approval, to pursue additional development programs or to explore other development opportunities.

Net Cash Flows

The following provides detailed information about
our net cash flows for the years ended December 31, 2024 and 2023:

Operating Activities

Net cash used in operating activities
was $(22,202,000) in 2024, compared to cash provided by of $3,840,000 in the prior year. The decrease in net cash provided by operating
activities between the periods was mainly attributed to changes in our working capital balances including accounts payable, prepaid expenses,
inventories and most notably, accounts receivable. Our accounts receivable balance between periods increased significantly due to an
increase in our branded product sales, which have a longer revenue cycle compared to our ImprimisRx product sales. In addition, during
2024, we extended additional terms to our largest distributor to allow for downstream and end users (e.g. hospitals, clinics and ambulatory
surgery centers) of certain of our branded products additional time to pay for our branded products.

Investing Activities

Net cash used in investing activities
in 2024 and 2023 was $33,164,000 and $152,553,000, respectively. Cash used in investing activities in 2024 was primarily due to the milestone
payment of $37,000,000 related to TRIESENCE offset by cash received from the sale of our investment in Eton for $5,510,000. Cash used
in investing activities in 2023 was primarily associated with the product acquisitions.

Financing Activities

Net cash provided by financing
activities in 2024 and 2023 was $28,528,000 and $126,528,000, respectively. Cash provided by financing activities during the year ended
December 31, 2024 was primarily due to additional borrowings under our long-term debt facility with Oaktree of $29,780,000, net of issuance
costs, and proceeds from the exercise of stock options, offset by the payment of taxes associated with the vesting and exercise of share-based
awards. Cash provided by financing activities during the year ended December 31, 2023 was primarily related to proceeds received from
the issuance of the Oaktree Loan and Oaktree Amendment, issuance of unsecured debt and sale of our equity, offset by payment of payroll
taxes upon vesting of PSUs in exchange for shares withheld from employees.

Sources of Capital

During the year ended December
31, 2024, our principal sources of cash came from proceeds from the Oaktree Amendment. In future periods, including the year ending December
31, 2025, we expect cash to be provided from our operating activities, but our forecasts may not be accurate and our plans may change.
We may also sell some or all of our ownership interests in Surface, Melt or our other subsidiaries

In January 2026 the Oaktree
Loan matures which totals $107,500,000 principal amount outstanding at December 31, 2024. The maturity of this debt obligation could
raise substantial doubt about our ability to continue as a going concern. We are currently in discussions with our current senior
secured lender, Oaktree, and other potential lenders about refinancing the Oaktree Loan. Management expects to move into more
definitive discussions and negotiations with Oaktree and potential lenders in the summer and fall of 2025. Management believes it is
probable that we will be able to refinance its Oaktree Loan based on our collateral strength and expected cash flows from operations; however, there can be no assurance that we will obtain the refinancing
on terms acceptable to us, or at all. If we are unable to successfully refinance the Oaktree Loan, we do not expect to have the
ability to repay the Oaktree Loan in full. We believe that one of the other alternatives available to us is the sale of one or more
of our assets. There can be no assurance that any sale could be completed on a timely basis or on terms acceptable to us.

We may acquire new products,
product candidates and/or businesses and, as a result, we may need significant additional capital to support our business plan and fund
our proposed business operations. We may receive additional proceeds from the exercise of stock purchase warrants that are currently
outstanding. We may also seek additional financing from a variety of sources, including other equity or debt financings, funding from
corporate partnerships or licensing arrangements, sales of assets or any other financing transaction. If we issue equity or convertible
debt securities to raise additional funds, our existing stockholders may experience substantial dilution, and the newly issued equity
or debt securities may have more favorable terms or rights, preferences and privileges senior to those of our existing stockholders.
If we raise additional funds through collaboration or licensing arrangements or sales of assets, we may be required to relinquish potentially
valuable rights to our product candidates or proprietary technologies or formulations, or grant licenses on terms that are not favorable
to us. If we raise funds by incurring additional debt, we may be required to pay significant interest expenses and our leverage relative
to our earnings or to our equity capitalization may increase. Obtaining commercial loans, assuming they would be available, would increase
our liabilities and future cash commitments and may impose restrictions on our activities, such as the financial and operating covenants.
Further, we may incur substantial costs in pursuing future capital and/or financing transactions, including investment banking fees,
legal fees, accounting fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses
in connection with certain securities we may issue, such as convertible notes and warrants, which would adversely impact our financial
results.

We may be unable to obtain financing
when necessary as a result of, among other things, our performance, general economic conditions, conditions in the pharmaceuticals and
pharmacy industries, or our operating history. In addition, the fact that we have a limited history of profitability could further impact
the availability or cost to us of future financings. As a result, sufficient funds may not be available when needed from any source or,
if available, such funds may not be available on terms that are acceptable to us. If we are unable to raise funds to satisfy our capital
needs when needed, then we may need to forego pursuit of potentially valuable development or acquisition opportunities, we may not be
able to continue to operate our business pursuant to our business plan, which would require us to modify our operations to reduce spending
to a sustainable level by, among other things, delaying, scaling back or eliminating some or all of our ongoing or planned investments
in corporate infrastructure, business development, sales and marketing and other activities, or we may be forced to discontinue our operations
entirely.

Critical Accounting Policies and Estimates

We rely on the use of estimates
and make assumptions that impact our financial condition and results. These estimates and assumptions are based on historical results
and trends as well as our forecasts of how results and trends might change in the future. Although we believe that the estimates we use
are reasonable, actual results could differ materially from these estimates.

We believe that the accounting
policies described below are critical to understanding our business, results of operations and financial condition because they involve
the use of more significant judgments and estimates in the preparation of our consolidated financial statements. An accounting policy
is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain
at the time the estimate is made, and any changes in the assumptions used in making the accounting estimates that are reasonably likely
to occur could materially impact our consolidated financial statements.

Revenue Recognition and Deferred Revenue

We account
for contracts with customers in accordance with ASC 606, Revenues from Contracts with Customers. We have three primary streams
of revenue: (1) product revenues, including revenue recognized from sales of products through its pharmacy and outsourcing facility and
sales of branded products to wholesalers through a third-party logistics (“3PL”) partner, (2) revenue recognized from transfer
of acquired product sales and profits, and (3) revenue recognized from intellectual property licenses.

Product Revenues

We sell
prescription medications directly through our pharmacy, outsourcing facility and 3PL partner. Revenue from our pharmacy services includes:
(i) the portion of the price the client pays directly to us, net of any volume-related or other discounts paid back to the client, (ii)
the price paid to us by individuals, and (iii) customer copayments made directly to the pharmacy network. Sales taxes are not included
in revenue. Following the core principles of ASC 606, we have identified the following:

Variable Consideration

Sales of branded pharmaceutical
products are subject to variable consideration due to chargebacks, government rebates, returns, administrative and other rebates, and
cash discounts. Estimates for these elements of variable consideration require significant judgment.

Chargebacks

Chargebacks, primarily from distributors
and wholesalers, result from arrangements with indirect customers establishing prices for products which the indirect customer purchases
through a wholesaler. Alternatively, we may pre-authorize wholesalers to offer specified contract pricing to other indirect customers.
Under either arrangement, we provide a chargeback credit to the wholesaler for any difference between the contracted price with the indirect
customer and the wholesaler’s invoice price, typically Wholesale Acquisition Cost (“WAC”). Prior period chargebacks
claimed by wholesalers are analyzed to determine the actual net price per package (“NPP”) for each product. This calculation
is performed by product by wholesaler. NPPs can be affected by several factors such as:

As necessary, NPPs are adjusted
based on anticipated changes in the factors above.

The difference between NPP and
WAC is recorded as a reduction in both gross revenues in the consolidated statements of operations and accounts receivable in the consolidated
balance sheets, at the time revenue is recognized from the product sale. We continually monitor chargeback activity and adjust NPPs
when we believe that actual selling prices will differ from current NPPs.

Government Rebates

Government rebates reserve consists
of estimated payments due to governmental agencies for utilization of our products by beneficiaries under such governmental programs.
The two largest government programs are Medicaid and Medicare.

We participate in the Medicaid
Drug Rebate Program and pay rebates to the states related on Medicaid beneficiary utilization of our products. Medicaid rebates
are billed within 60-90 days of the end of the quarter in which the product was dispensed to a Medicaid beneficiary. Medicaid rebate
amounts per product unit are established by law, based on the Average Manufacturer Price (“AMP”), which is reported on a
monthly and quarterly basis, and, in the case of branded products, best price, which is reported on a quarterly basis. Medicaid reserves
are based on expected claims from state Medicaid programs. Estimates for expected claims are driven by patient usage, sales mix, calculated
AMP or best price, as well as inventory in the distribution channel that will be subject to a Medicaid rebate. As a result of the delay
between selling the products, dispensing the products and rebate billing, the Medicaid rebate reserve includes both an estimate of outstanding
claims for end-customer sales that have occurred but for which the related claim has not been billed, as well as an estimate for future
claims that will be made when inventory in the distribution channel is sold through to plan participants. Many of the Company’s
branded products are also covered under Medicare. We participate in the Coverage Gap Discount Program in order for its branded products
to be covered by Medicare Part D and must provide a rebate for any products sold under NDAs dispensed to Medicare Part D beneficiaries
while the beneficiaries are in the Coverage Gap phase of the benefit. This applies to all products sold under NDAs. Estimates for these
discounts are based on historical experience with Medicare rebates for products. Medicare rebates are billed quarterly for drugs dispensed
to Medicare beneficiaries in the prior quarter, which is typically 120 days after the product is shipped. As a result of the delay between
selling the products, dispensing the products and rebate billing, Medicare rebate reserve includes both an estimate of outstanding claims
for end-customer sales that have occurred but for which the related claim has not been billed, as well as an estimate for future claims
that will be made when inventory in the distribution channel is sold through to Medicare Part D participants.

To evaluate the adequacy of the
government rebate reserves, reserves are reviewed on a quarterly basis against actual claims data to ensure the liability is fairly stated.
We continually monitor the government rebate reserve and adjust estimates if it is expected that actual government rebates may differ
from established accruals. Accruals for government rebates are recorded as a reduction to gross revenues in the consolidated statements
of operations and as an increase to accrued government rebates in the consolidated balance sheets.

Returns

A returns policy is in place
that allows customers to return product within a specified period prior to and after the expiration date. Generally, product may be returned
for a period beginning six months prior to its expiration date to up to one year after its expiration date. Product
returns are settled through the issuance of a credit to the customer. The estimate for returns is based upon historical experience with
actual returns. While such experience has allowed for reasonable estimation in the past, history may not always be an accurate indicator
of future returns. We continually monitor estimates for returns and adjust when it is expected that actual product returns may differ
from the established accruals. Accruals for returns are recorded as a reduction to gross revenues in the consolidated statements of operations
and as an increase to the return goods reserve in the consolidated balance sheets.

Administrative Fees and Other Rebates

Administrative fees or rebates
are offered to wholesalers, group purchasing organizations, and indirect customers. Fees and rebates are accrued, by product by wholesaler,
at the time of sale based on contracted rates and NPPs. To evaluate the adequacy of the administrative fee accruals, on-hand inventory
counts are obtained from the wholesalers. We continually monitor administrative fee activity and adjust accruals when it is expected
that actual administrative fees may differ from the accruals. Accruals for administrative fees and other rebates are recorded as a reduction
in both gross revenues in the consolidated statements of operations and accounts receivable or accrued expenses in the consolidated balance
sheets.

Co-payment
Assistance

Patients
who meet certain eligibility requirements may receive co-payment assistance funded by us. We record contra-revenue for co-payment assistance
based on actual program participation and estimates of program redemption using data provided by third-party administrators. An accrued
liability is recorded on unredeemed co-payment assistance related to products for which control has been transferred to the customer.

Prompt Payment Discounts

Sales
discounts may be granted to customers for prompt payment. The reserve for prompt payment discounts is based on invoices outstanding.
Based on past experience, it is assumed that all available discounts will be taken. Accruals for prompt payment discounts are recorded
as a reduction in both gross revenues in the consolidated statements of operations and accounts receivable in the consolidated balance
sheets.

Revenues From Transfer of Acquired Product Sales and Profits

We entered
into agreements whereby we purchased the exclusive commercial rights to assets associated with certain ophthalmic products from other
pharmaceutical companies (the “Sellers”). During a temporary, transition period, the Sellers continue to manufacture and
market these products and transfer the net profit from the sale of the products to us. The revenue we recognized from the transfer of
net profit was recognized at the time profit from the product sales were calculated by the Sellers and confirmed by us, typically on
a monthly basis, at which point there is no future performance obligation required and no consequential continuing involvement on our
part to recognize the associated revenue. On a quarterly basis, the Sellers invoiced us for all credits and reimbursements (“Chargebacks”)
made to customers related to the products. We used historical actual experience to estimate Chargebacks associated with the net sales
and profit transferred. The estimated Chargebacks are recorded as a reduction in revenues from transfer of acquired product sales and
profits in our consolidated statements of operations, and recorded as a reduction to accounts receivable in the consolidated balance
sheets, at the time the revenue is recognized.

Intellectual Property License Revenues

We currently
hold five intellectual property licenses and related agreements pursuant to which we have agreed to license or sell to a customer with
the right to access our intellectual property. License arrangements may consist of non-refundable upfront license fees, data transfer
fees, research reimbursement payments, exclusive license rights to patented or patent pending compounds, technology access fees, and
various performance or sales milestones. These arrangements can be multiple-element arrangements, the revenue of which is recognized
at the point in time that the performance obligation is met.

Non-refundable
fees that are not contingent on any future performance and require no consequential continuing involvement on our part are recognized
as revenue when the license term commences and the licensed data, technology, compounded drug preparation and/or other deliverables are
delivered. Such deliverables may include physical quantities of compounded drug preparations, design of the compounded drug preparations
and structure-activity relationships, the conceptual framework and mechanism of action, and rights to the patents or patent applications
for such compounded drug preparations. We defer recognition of non-refundable fees if it has continuing performance obligations without
which the technology, right, product or service conveyed in conjunction with the non-refundable fee has no utility to the licensee and
that are separate and independent of our performance under the other elements of the arrangement. In addition, if our continued involvement
is required, through research and development services that are related to its proprietary know-how and expertise of the delivered technology
or can only be performed by us, then such non-refundable fees are deferred and recognized over the period of continuing involvement.
Guaranteed minimum annual royalties are recognized on a straight-line basis over the applicable term.

Income Taxes

As part of the process of preparing
our consolidated financial statements, we must estimate the actual current tax assets and liabilities and assess permanent and temporary
differences that result from differing treatment of items for tax and accounting purposes. The temporary differences result in deferred
tax assets and liabilities, which are included within the consolidated balance sheets. We must assess the likelihood that the deferred
tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not more likely than not, a valuation
allowance must be established which reduces the amount of deferred tax assets recorded on the consolidated balance sheets. To the extent
we establish a valuation allowance or increase or decrease this allowance in a period, the impact will be included in income tax expense
in the consolidated statements of operations.

We account for income taxes under
the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740,
Income Taxes. As of December 31, 2024 and 2023, there was $2,858,000 and $2,822,000, respectively, of unrecognized tax benefits
included in the consolidated balance sheets that would, if recognized, affect the effective tax rate. Our practice is to recognize interest
and/or penalties related to income tax matters in income tax expense. We had an accrual for interest or penalties of $69,000 and $40,000
in the consolidated balance sheets at December 31, 2024 and 2023, respectively, and have recognized interest and/or penalties in the
consolidated statements of operations for the years ended December 31, 2024 and 2023 of $69,000 and $40,000, respectively. We are subject
to taxation in the U.S., California, New Jersey, Tennessee, and various other states. Our tax years since 2000 may be subject to examination
by the federal and state tax authorities due to the carryforward of unutilized net operating losses.

Goodwill and Intangible Assets

Patents and trademarks are recorded
at cost and capitalized at a time when the future economic benefits of such patents and trademarks become more certain. At that time,
we capitalize third-party legal costs and filing fees associated with obtaining and prosecuting claims related to its patents and trademarks.
Once the patents have been issued, we amortize these costs over the shorter of the legal life of the patent or its estimated economic
life, generally 20 years, using the straight-line method. Acquired product rights, including NDAs, are amortized over their estimated
useful lives, generally 4-15 years, based on a straight-line method. Trademarks are an indefinite-lived intangible asset and are assessed
for impairment based on future projected cash flows as further described below.

We review our goodwill and indefinite-lived
intangible assets for impairment as of January 1 of each year and when an event or a change in circumstances indicates the fair value
of a reporting unit may be below its carrying amount. Events or changes in circumstances considered as impairment indicators include
but are not limited to the following:

The goodwill impairment test
consists of a two-step process as follows:

Step 1. We compare the fair value of each
reporting unit to its carrying amount, including the existing goodwill. The fair value of each reporting unit is determined using a discounted
cash flow valuation analysis. The carrying amount of each reporting unit is determined by specifically identifying and allocating the
assets and liabilities to each reporting unit based on headcount, relative revenues or other methods as deemed appropriate by management.
If the carrying amount of a reporting unit exceeds its fair value, goodwill is considered impaired, and we then perform the second step
of the impairment test to measure the impairment loss. If the fair value of a reporting unit exceeds its carrying amount, no further
analysis is required.

Step 2. If the carrying amount of the reporting
unit exceeds its fair value, an impairment loss will be recognized in an amount equal to the excess, limited to the total amount of goodwill
allocated to that reporting unit.

As a result of our assessments
in 2024 and 2023, we concluded that goodwill is not impaired as of December 31, 2024 and 2023.

Impairment of Other Long-Lived Assets

Other
long-lived assets, such as property, plant and equipment, purchased intangibles subject to amortization and patents and trademarks, are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Such circumstances could include, but are not limited to (1) a significant decrease in the market value of an asset, (2) a significant
adverse change in the extent or manner in which an asset is used, or (3) an accumulation of costs significantly in excess of the amount
originally expected for the acquisition of an asset. Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount
of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized in the amount by which the carrying
amount of the asset exceeds the fair value of the asset. The fair value of the asset is based on the discounted value of its estimated
future cash flows. Assets to be disposed of would be separately presented in the consolidated balance
sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and
liabilities of a disposal group classified as held-for-sale would be presented separately in the appropriate asset and liability sections
of the consolidated balance sheet, if material.

As a result of its assessment
in 2024 and 2023, we recorded an impairment charge of $253,000 and $380,000, respectively, related to the impairment of certain licenses,
trademarks, patents and patent applications (see Note 11 to our consolidated financial statements).

Stock-Based Compensation

All stock-based payments to employees,
directors and consultants, including grants of stock options, warrants, restricted stock units (“RSUs”), performance stock
units (“PSUs) and restricted stock, are recognized in the consolidated financial statements based upon their estimated fair values.
We use the Black-Scholes-Merton option pricing model and Monte Carlo simulation model to estimate the fair value of stock-based awards.
The estimated fair value is determined at the date of grant. The financial statement effect of forfeitures is estimated at the time of
grant and revised, if necessary, if the actual effect differs from those estimates.

Off-Balance Sheet Arrangements

We do not have any off-balance
sheet arrangements, including the use of structured finance, special purpose entities or variable interest entities.